The Third Party Financing Addendum (TREC form 40-11) is the part of a Texas home contract that makes your purchase depend on getting your loan. It sets the loan terms, gives you a set number of days to get Buyer Approval, and lets you terminate with your earnest money back if the property fails the lender’s requirements by the 3rd day before closing. VA and FHA buyers get extra appraisal protection in Paragraph 4.
Brock Bremmer | Real Estate Agent | eXp Realty | San Antonio Metro Area
Buyer Contracts Specialist
Also see: The Texas Option Period | Getting Earnest Money Back | Title Insurance in Texas
When Is the Third Party Financing Addendum Used?
TREC says the addendum (form 40-11, effective January 3, 2025) is used when any type of financing for all or part of the purchase price comes from a third party, meaning someone other than the buyer or seller. Texas rules require it with TREC-promulgated contracts whenever the deal depends on that kind of financing.
The form has boxes for each loan type:
- A. Conventional (first and second mortgages)
- B. Texas Veterans Land Board
- C. FHA insured
- D. VA guaranteed
- E. USDA guaranteed
- F. Reverse mortgage
- G. Other financing
For each, you fill in the loan amount, term, maximum interest rate, and maximum origination charges. Paragraph 1 also requires the buyer to apply promptly and make every reasonable effort to get approved.
What Is Buyer Approval, and How Many Days Should You Pick?
Buyer Approval is about you: your income, assets, and credit. Under Paragraph 2A, you check one box. Either the contract is subject to Buyer Approval for a set number of days after the effective date, or it isn’t.
If you can’t get approved within that window, you can terminate by giving the seller notice and a copy of a written statement from your lender with the reason. Your earnest money is then refunded. If you don’t terminate by the deadline, the contract is no longer subject to Buyer Approval, so a later denial can put your earnest money at risk.
The number of days is negotiated. Ask your lender how long full underwriting will take before you write the offer. Being fully underwritten up front lets you pick a shorter window, which can strengthen an offer. See also when you can get earnest money back in Texas.
What Is Property Approval?
Property Approval is about the house. Under Paragraph 2B, if your lender decides the property doesn’t meet its underwriting requirements, including appraisal, insurability, and lender-required repairs, you can terminate on or before the 3rd day before the closing date. You give notice and the lender’s written statement, and the earnest money is refunded.
That’s why you should start insurance quotes during your option period. Insurability is part of Property Approval, and a problem found two days before closing is past that deadline. My guide on the Texas option period covers what else to do in those first days.
What Does Paragraph 4 Do for VA and FHA Buyers?
Paragraph 4 is the FHA/VA required provision. If the appraised value (or the VA’s reasonable value) comes in below the amount written in the blank, you aren’t obligated to buy and don’t forfeit earnest money. The 3-day deadline in Paragraph 2B doesn’t apply to this paragraph.
- You can still proceed: You may close regardless of the appraised value.
- VA cash rule: If you choose to close above the VA’s reasonable value, you pay the excess in cash from a source you disclose to VA, not from borrowed funds except as VA approves.
- Seller option: The seller may reduce the price to the VA reasonable value.
Here’s more on what happens if a VA appraisal comes in low.
Does It Apply When You Buy From a Builder?
Not always. Many builders around San Antonio use their own purchase agreements instead of TREC forms. Those contracts have their own financing terms, and they may give the buyer less time or fewer exits than the TREC addendum. Before you sign, find the financing section and compare it with what you’d get under 40-11. Here’s what to look for in a builder’s purchase contract.
What Mistakes Should You Avoid?
- Interest rate too low: If the rate cap is lower than what you’ll actually get, the terms you agreed to may not be available. Ask your lender for a realistic ceiling.
- Waiting on the lender letter: Termination needs the lender’s written statement, not just a phone call. Ask for it in writing.
- Missing the dates: Put the Buyer Approval deadline and the 3-days-before-closing date on your calendar the day the contract is effective.
- Using an old form: 40-11 replaced 40-10. Check the footer.
Frequently Asked Questions
What happens if I don’t get loan approval in Texas?
If your contract is subject to Buyer Approval under the TREC Third Party Financing Addendum, you can terminate within the days you agreed to by giving the seller notice and your lender’s written statement, and your earnest money is refunded.
Can I back out if the appraisal is low in Texas?
Under Property Approval, you can terminate by the 3rd day before closing if the lender decides the property doesn’t meet its requirements, including appraisal. FHA and VA buyers also have Paragraph 4, which isn’t tied to that 3-day deadline.
Ready to Write a Strong Offer?
Brock Bremmer with eXp Realty is a U.S. Air Force Reserves veteran with 120+ homes sold across the San Antonio metro and an eXp ICON agent (2023–24). He helps buyers set financing terms and deadlines that fit their lender’s timeline on resale homes and new builds in San Antonio, New Braunfels, and Boerne.
- 📞 Call or text: 210-501-5088
- 📧 Email: [email protected]
- 📅 Schedule a free consultation
Also see: Buyer Representation Agreements | Surveys in Texas | HOA Resale Certificates | Buying Before You Sell
Sources: TREC, Third Party Financing Addendum (40-11); TREC 40-11 form (PDF); 22 Tex. Admin. Code § 537.47 (accessed November 4, 2026).